@littlenoodles: I feel your pain, same thing happened to me, only I have a 6100 series card. I tried different kernels, no joy. Then I read this thread, thankfully as it saved a lot of time debugging it myself. Turning off the blur effect did it for me, what a difference it made!! So now I'm very happy with my KDE 4.5 (only stable on PCLOS and Arch AFAIK).
To those that suggest he buys a new card, I say com'on guys, this is not a good enough answer. I just bought a new motherboard for my micro ATX multimedia centre (attached to 1920x1080 TV) just because my onboard ATI radeon was not supported by proprietary driver anymore. I don't want to have to buy something else, it's not as if the 6 series or 5 series are not good enough for KWin efffects, buying a 9 series is overkill, unless you play 3D games. If nvidia still supports it, so should KDE team.
I wish I could help you more Bee Hoon, but I don't know my way around X11, KDE4 and nvidia drivers enough. Perhaps try disabling all your effects and enable then one by one to find the culprit, may shed some light on it.